A bank account is a record the bank keeps of your money, and a contract between you and the bank about what you can do with it

When you open a bank account, you give the bank money. The bank holds that money, keeps track of how much you have, and lets you take it out when you need it. In exchange, the bank may pay you a small amount of interest (money they give you for letting them use your money), or they may charge you a fee. The account itself is not a physical thing — it is a ledger entry, a number in the bank's computer that says your name and how much belongs to you.

The bank uses your money to make loans to other people and businesses. That is how banks make money: they pay you a little interest on your deposit, lend your money out at a higher interest rate, and keep the difference. You are protected by FDIC insurance, which means if the bank fails, the federal government will pay you back up to $250,000 of your deposit. This protection applies to most banks in the United States.

Key Takeaways

  • A bank account is a contract: you deposit money, the bank holds it and lets you withdraw it, and either pays you interest or charges you a fee.
  • The bank uses your money to make loans to others, which is how they profit and how you may earn interest on your balance.
  • FDIC insurance protects your money up to $250,000 per account type per bank if the bank fails.
  • Different account types — checking, savings, money market — have different rules about how often you can withdraw money and what interest you earn.
  • You access your money through a debit card, checks, transfers, or ATM withdrawals, depending on the account type and what the bank offers.

Checking accounts versus savings accounts

A checking account is designed for frequent withdrawals. You can write checks, use a debit card, set up automatic payments, and transfer money out as many times as you want, with no penalty. The bank usually does not pay you interest on a checking account, or pays very little. Some checking accounts charge a monthly fee if you do not keep a minimum balance, though many banks now offer free checking.

A savings account is designed to hold money you are not spending right now. The bank pays you interest on the balance — the rate varies by bank and changes over time. In exchange, the bank limits how many times per month you can withdraw money without a penalty. Federal rules once capped this at six withdrawals per month, but that rule was suspended; however, individual banks still often enforce their own limits. If you exceed the limit, the bank may charge a fee or close the account.

A money market account is a hybrid: it pays interest like a savings account but lets you write checks and use a debit card like a checking account. It usually requires a higher minimum balance than either a checking or savings account, and the interest rate is often higher too.

How you access your money

The most common way to spend money from a checking account is with a debit card. You swipe or insert the card at a store, enter your PIN at an ATM, or use the card number online. The money comes out of your account immediately or within one business day. The bank does not charge you interest on a debit card purchase — you are spending your own money, not borrowing.

You can also withdraw cash from an ATM (automated teller machine). If you use an ATM owned by your bank, there is usually no fee. If you use an ATM owned by another bank, that bank may charge you a fee of $2 to $4, and your bank may charge you a fee too. Some banks reimburse ATM fees if you keep a high balance or pay a monthly fee for premium membership.

You can write a check from a checking account. A check is a written order to your bank to pay someone a specific amount of money. The person who receives the check deposits it at their bank, and the money moves from your account to theirs. Checks take several business days to clear, so the money does not leave your account right away. This delay is why some people still use checks for bills — it gives them a few extra days if they are short on cash.

You can also transfer money electronically. An ACH transfer (Automated Clearing House) moves money between bank accounts, usually within one to three business days, and is free. A wire transfer moves money the same day or next day but usually costs $15 to $30. A peer-to-peer transfer (through apps like Venmo or PayPal) moves money to another person's account or phone number, usually within minutes, and is often free.

Fees and interest

Banks charge fees for several reasons. A monthly maintenance fee is charged just for having the account open, usually $5 to $15, though many banks waive it if you keep a minimum balance or set up direct deposit. An overdraft fee is charged if you try to withdraw more money than you have in the account — the fee is usually $25 to $35 per overdraft, and a bank may charge multiple fees in a single day if you make multiple transactions. A non-sufficient funds fee is similar but applies when a check or automatic payment bounces because you do not have enough money.

Interest rates on savings accounts vary widely. As of 2024, rates range from nearly 0% at some large banks to 4% or higher at online banks and credit unions, depending on the current federal interest rate and the bank's business model. Online banks often pay higher interest because they have lower overhead costs. The interest is calculated daily but paid monthly or quarterly. If you have $1,000 in a savings account earning 4% annual interest, you earn about $40 per year, or roughly $3.33 per month.

How transactions are recorded

Every time you use your debit card, write a check, or make a transfer, the bank records it in your account. This record is called your transaction history or account statement. You can see your balance and recent transactions online, usually in real time or within a few hours. The bank also sends you a statement each month, either by mail or email, showing all transactions and your ending balance.

Your balance has two parts: your available balance is the money you can spend right now. Your current balance includes money that is on its way in or out but has not cleared yet. For example, if you deposit a check, your current balance goes up immediately, but your available balance does not increase until the check clears, which can take several business days. This is why you can see a deposit in your account but not spend it yet.

What happens if you lose access to your account

If you forget your password, you can reset it online or call the bank. If your debit card is lost or stolen, call the bank immediately. You are protected by federal law: if you report the loss before someone uses the card, you owe nothing. If you report it within two business days, you owe at most $50. If you wait longer than two business days, you may owe up to $500. If you do not report it within 60 days of receiving your statement, you may owe the full amount of fraudulent charges.

If your account is frozen or closed by the bank, the bank must tell you why. Common reasons are suspected fraud, repeated overdrafts, or violation of the bank's terms of service. If your account is frozen, you usually cannot withdraw money, but the bank cannot keep your money indefinitely. You can contact the bank to dispute the freeze or close the account and move your money elsewhere.

Frequently Asked Questions

Can I have more than one bank account?

Yes. You can have multiple checking accounts, multiple savings accounts, or both at the same bank or at different banks. Each account is insured separately up to $250,000 by the FDIC, so if you have $300,000 across two accounts at the same bank, $250,000 is protected and $50,000 is not. Some people keep one account for bills and another for savings, or use different banks to earn different interest rates.

What is the difference between a bank and a credit union?

A credit union is a nonprofit organization owned by its members, while a bank is a for-profit business. Credit unions often charge lower fees and pay higher interest on savings, but they may have fewer branches and ATMs. Credit union deposits are insured by the NCUA (National Credit Union Administration) up to $250,000, the same as FDIC insurance.

Do I need a minimum balance to open an account?

It depends on the bank and account type. Many banks now offer checking accounts with no minimum balance. Savings accounts and money market accounts often require a minimum balance of $100 to $2,500 to earn interest or to avoid a monthly fee. Online banks typically have lower or no minimums.

How long does it take money to appear in my account after I deposit it?

Cash deposits at an ATM or teller window usually appear within one business day. Check deposits take three to five business days to clear, though some banks make the money available sooner. Direct deposits from an employer or government benefit usually arrive on the scheduled date. ACH transfers from another bank take one to three business days.

What should I do if I see a transaction I did not make?

Contact your bank immediately by phone or through your online account. Report the transaction as fraudulent or unauthorized. The bank will investigate and usually refund the money within 10 business days while they look into it. Keep any receipts or documentation you have. If the bank finds the charge was fraudulent, the refund becomes permanent.